Hire Purchase of Asset

 

THERE ARE A NUMBER OF DIFFERENT METHODS OF PAYING FOR AN ASSET PURCHASED:
 
  • OUT OF THE COMPANY FUNDS HELD AT BANK
  • BANK LOAN DRAW DOWN
  • FINANCE LEASE
  • HIRE PURCHASE
 
Assets can be financed through a finance company by either a Finance Lease or Hire Purchase.  The two main differences between both methods of finance are:
 
 
1. VAT
 
Leasing
 
The finance company itself claims back the total vat at the time of financing the asset as opposed to the client.  The leasing company then charges vat on each monthly repayment the client makes which the client claims back from Revenue each month.
 
Hire Purchase
 
The client claims back the vat element in full directly from Revenue in their next vat return after purchase.  In turn there is no vat charge on each monthly hire purchase repayment.
 
 
2. CAPITAL ALLOWANCES

The capital allowances allowed in the calculation of the year end tax return are capped for assets financed via Hire Purchase agreements.
 
 
 

ASSETS PAID THROUGH HIRE PURCHASE

 
If the Asset is financed, then the finance company is paying for the asset and you are repaying the finance company periodically.  **Do not post a Purchase Invoice**

This finance arrangement allows the purchaser themselves to claim back the vat element in full in their next vat return after purchasing the asset.
 

 

RECORD THE FINANCE EXTENDED BY THE HIRE PURCHASE FINANCE PROVIDER

 

Accounts Production> Journals> Ordinary Journals>
 
 
Date            
 
Enter the Date of the Hire Purchase Finance Agreement / Date Finance effective
 
 
Comment               
 
Description of the Hire Purchase Agreement and Asset financed, e.g. description of asset & lease agreement number
 
 
Asset Account      
 
Choose the appropriate Asset account from the listing and DEBIT it with the NET cost (i.e. excluding VAT) of the asset purchased.
 
 
Hire Purchase Account    
 
Choose the appropriate Hire Purchase Account from the listing and CREDIT it with the Finance Amount extended.
 
 
VAT 
 
Choose the VAT account and DEBIT it with the VAT charged on the purchase of the Asset.
 
 
Post Entry              
 
Click "Post Entry" to save the transaction entry.
 
 
REMEMBER : IN THE NEXT VAT RETURN THE NORMAL VAT REPORT WILL NOT REFLECT THE VAT ELEMENT POSTED ABOVE AS IT IS POSTED DIRECT TO THE NOMINAL VAT ACCOUNT VIA JOURNAL ENTRY.  YOU MUST MAKE A MANUAL ADJUSTMENT TO THE NORMAL VAT REPORT TO ADJUST FOR THE VAT ELEMENT TO BE RECLAIMED.
 
 
 

PERIODICAL HIRE PURCHASE REPAYMENTS

 
To record each periodical payment to the HP Finance Company
 
BANK > PAYMENTS
 
 
Payments from                 
 
Select the bank account from the drop down list from which the payment was made (bottom right hand corner of entry screen). It is important that you ensure you are working from the correct bank account at the start.
 
 
Reference
 
In this case it is the Direct Debit reference, e.g. DD
 
 
Date                                                                        
 
Date of Direct Debit
 
 
Supplier/ Payee
 
Select a Payee from the existing list (F2) or type the first letter of the Payee name, use arrow down key to scroll through the existing Payee names.
 
To setup a new Payee simply type the new Payee name. The program will recognise the new name does not already exist and prompt you to specify if it is a new “Supplier” or “Other”, select “Other” to add the new name to the Payee list.
 
It would be advisable to set up the Payee in the name of the Finance provider with the Hire Purchase Agreement number.  This Payee will then be selected for all future HP repayments.
 
 
Nominal Account              
 
Choose the Hire Purchase Account
 
 
Amount                                                                  
 
Enter the total amount of the periodical repayment.
 
 
VAT                         
 
VAT is not applicable to HP repayments and should be left at zero as the total VAT.

Need help? Support is available at 01 8352074 or support@thesaurus.ie.

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